Who are Fannie Mae and Freddie Mac and What do They Have to Do with My Mortgage?

Bankers, real estate sales associates and even journalists use the terms “Fannie Mae” and “Freddie Mac” like the names of old friends — veterans in the mortgage game. We’ve all heard the term and feel like we should remember good old Fannie pinching our cheeks at a family reunion while Freddie flipped the burgers. Don’t be embarrassed if you don’t remember them or even know who they are. Don’t fret if you don’t even know what they are. You’re in good company.

At our company we have challenged ourselves to help educate our clients and potential clients by educating ourselves. Consider this a little brush up on loan lingo that will wipe away that ever so dim question mark that pops up in your mind when these terms are mentioned. Feel free to contact us today and we’ll be glad to answer all of your questions about mortgage-related issues — or at least we’ll find someone else who can!

Fannie Mae does not Wear a Straw Hat or Crochet Placemats

Fannie Mae is a friendly name for the Federal National Mortgage Association (FNMA). I know, that doesn’t help much, but it’s a start. Fannie Mae is actually a stockholder-owned corporation. Congress chartered the organization in 1968 as a government-sponsored enterprise. The association was actually founded in 1938 during the Great Depression.

The mission of the association is to “provide liquidity and stability to the U.S. housing and mortgage markets,” according to Fannie Mae’s website at http://www.fanniemae.com.

Fannie Mae works in the secondary mortgage market. It doesn’t make loans directly to buyers, but rather works with primary lenders like mortgage bankers, brokers, and others to make sure they have the funds available to give borrowers affordable rates. Mortgage investments are funded through debt securities in the U.S. domestic market and in international capital markets.

Unfortunately, Fannie Mae — sweet as she is — ran into some trouble as a private shareholder-owned company. On Sept. 6, 2008, Federal Housing Finance Agency Director James Lockhart put his agency in charge of overseeing the private company. Fannie Mae was bailed out of a major economic crisis with up to $100 billion in capital from the U.S. Department of the Treasury to ensure the housing and mortgage markets stayed liquid. Basically this means the federal government took legal control of the private company in exchange for financial assistance. This was considered a broad and sweeping government intervention in a private industry unlike any seen in decades in America.

Fannie Mae works in three separate businesses:

Single family housing
Housing and Community Development
Capital Markets

These entities “work together to provide services, products, and solutions to lender partners and a broad range of housing partners,” according to http://www.fanniemae.com.

Freddie Mac is Not Your Favorite Uncle

Freddie Mac has certainly helped the mortgage industry, but rather than a friendly old man playing checkers in the park, Freddie Mac is known by a much more distinguished name in the US Government: Federal Home Loan Mortgage Corporation.

Freddie Mac, like Fannie Mae, is a private government sponsored enterprise. It was created in 1970 to help grow the mortgage secondary market. Freddie Mac buys mortgages on the secondary market, pools them together and sells them. They are sold as mortgage-backed securities on what we know as the open market.

This is a good plan because it increases the amount of money out there for mortgages. Like Fannie Mae, Lockhart locked up conservatorship of Freddie Mac in September 2008 to prevent further collapse of a mortgage market in crisis.

Where does Freddie Mac’s money come from? The enterprise charges guarantee fees on loans that it purchases and puts into mortgage-backed security bonds. Freddie Mac assumes the risk on these mortgages and lenders are happy to let Freddie Mac have it and the fees. Freddy Mac guarantees a lender will get back principal and interest on such loans whether or not the borrower actually pays.

As of 2008, Fannie Mae and Freddie Mac owned or guaranteed about $12 trillion of the country’s mortgage market.